1983 (3) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Whether the interest income of Rs. 1,98,791 is exempt from income-tax for the assessment year 1975-76.

Summary:

Issue 1: Exemption of Interest Income from Income-Tax

The primary question for decision is whether the interest income of Rs. 1,98,791 is exempt from income-tax for the assessment year 1975-76. The Tribunal had previously decided that the principal sum of Rs. 56,97,657, collected from a raffle conducted on behalf of the Welfare Society by the Government, was not taxable as it was conducted by the State Government. Consequently, the interest income derived from this principal sum was also considered exempt.

The Revenue contended that the Welfare Society, being a body formed for the benefit of policemen (government employees), does not qualify as a public or charitable trust u/s 2(15) of the Income-tax Act. They relied on precedents such as Oppenheim v. Tobacco Securities Trust Co. Ltd. and IRC v. City of Glasgow Police Athletic Association, arguing that a trust for the benefit of employees does not serve a public purpose.

The assessee countered that there is a distinction between private and public employment, and cited cases like CIT v. Andhra Chamber of Commerce and Ahmedabad Rana Caste Association v. CIT to argue that the Welfare Society serves a public purpose. They also pointed to statutory notifications u/s 10(23C)(iv) of the Act, which exempt funds for the benefit of government employees, such as the Armed Forces Reconstruction Fund.

The court examined the objectives and rules of the Andhra Pradesh Police Welfare Society, which include various welfare measures for policemen and their families. The court noted that the society's purposes are charitable in nature and that the nexus between the government (as an employer) and its employees is impersonal, unlike in private employment. The court concluded that the Welfare Society constitutes "a section of the public" and thus qualifies as a charitable trust.

Therefore, the interest income of Rs. 1,98,791 is exempt from income-tax, and the question is answered in the affirmative, in favor of the assessee. The reference case is rejected with no costs.